High streets will go on suffering until the digital economy pays more tax

Marks & Spencer paid £184m in business rates last year, while Amazon paid just £14m.
Photograph: David Levene for the Observer

House of Fraser, Mothercare, Marks & Spencer, Debenhams. The list of major retailing names that have announced plans to close stores this year is long, and will undoubtedly lengthen. That is before you count the chains that have gone the way of Woolworths and packed up altogether – the likes of Toys R Us and Maplin. And nobody has a reliable tally of the independent shops that have disappeared.

No retailer has a right to survive and some of the headline-grabbing retreats owe much to outdated formats, lack of investment or bad management. Yet talk of a “crisis” on our high streets is legitimate. At least 35,000 retail jobs have been lost or put at risk of redundancy this year, which represents a brutal readjustment even at a time of high rates of general employment.

UK high street sales fall for fifth month running

Read more

The deeper effect – harder to measure but more important in the long run – is the loss to local communities. Hollowed-out town centres with boarded-up premises advertise decline. A sense of community cohesion is lost. Other employers become reluctant to invest. Money gravitates elsewhere. In the US, which has more of a local “mall” culture, they talk about a “retail apocalypse”, undermining local tax bases and hitting low-income earners hardest.

The popular villain of the UK piece is business rates, the property-based tax that raises £29bn a year for the Treasury, of which retailers cough up £8bn. It isn’t the only culprit, but the complaint from bricks-and-mortar shopkeepers is essentially correct: business rates were invented in a pre-internet age and the system is archaic. A useful tax system would help to reverse the damage done to high streets from the 1980s by sprawling out-of-town retail parks. Instead business rates, as currently structured, add to the problem.

The most startling statistic was provided by the New West End Company, an alliance of central London retailers, hoteliers and property owners. It calculated that Marks & Spencer, a company with a turnover of £9.6bn last year, paid £184m in business rates, whereas Amazon, with slightly smaller revenues in the UK of £7.3bn, paid substantially less in rates – just £14m. Amazon, of course, operates from more lightly taxed warehouses and requires fewer properties. New West End calculated that a 1% sales tax on online businesses could raise more than £5bn, which could go some way to levelling the retail playing field.

Philip Hammond, however, is not for levelling. Faced with a chorus of calls for reform, the chancellor wrote to the Treasury select committee last week to say the 2016 review of business rates was clear. “Respondents agreed that property-based taxes were easy to collect, difficult to avoid, relatively stable compared with other taxes and had a clear link with local authority spending,” he said.

It is probably fair for Hammond to fret about “distortionary” effects. If business rates on the high street were to be slashed, the biggest short-term beneficiaries might be landlords, which are desperately trying to resist retailers’ simultaneous pleas for lower rents. But that is not an excuse for ignoring the plainly unfair burden of taxation that is falling on high streets and inner-city shops. If council taxes on high-end residential properties need to pick up some of the slack, so be it.

Central government could help by allowing local authorities, better placed to address local crises, to set and collect property-based taxes. The select committee, whose chair, Nicky Morgan, sounded unimpressed by Hammond’s intransigence, should keep pushing. The chancellor’s plea that he is “making progress” with plans to find a better way to tax the digital economy is miserable. The pain on the high street is happening now.

'It's like the death of a loved one': as stores close, retail workers lose out to big tech

Read more

Ryanair has grown to a size that belies its image as an upstart

It’s impossible to imagine Ryanair without its pugnacious chief executive, Michael O’Leary, at the helm. For as long as Ryanair has existed O’Leary has been its public face, warring with rival airline bosses, dishing out tongue-lashings to politicians, even insulting passengers with glee.

It is solidly and persistently profitable, with few exceptions, in an​ ​industry where traditional carriers have often suffered volatility in​ ​financial performance.

But something is happening at Ryanair that it has never experienced before.

Back in December O’Leary agreed to recognise trade unions. He did so largely because he had no choice. Disgruntled pilots were​ ​holding his feet to the fire, their hand strengthened by a shortage of​ ​experienced crews to fly his planes. Cabin staff have ​also ​seized the opportunity to seek improvements​ ​to pay and conditions.

So far Ryanair has shown no signs of bowing to the demands of its​ ​staff. It does not seem implausible to expect more labour disputes and​ ​cancelled flights as a result.

That can only go on so long before Ryanair starts to garner a​ ​reputation for leaving passengers in the lurch. No-frills customers still want low prices, but they also want to get to​ ​where they’re going.

Airline bosses have faced down trade unions before, but it is a​ ​time-consuming business that distracts from operational excellence.

Ryanair is no longer a challenger upstart but a mature business with​ ​evolving needs. It remains to be seen if the characteristics that have made​ ​O’Leary so effective are the right ones to steer Ryanair through​ ​this evolution. That is something investors should start thinking about.

Shell foresees an electric future – but it isn’t quite ready to pull the plug on petrol

Why would an oil company try to bring forward a ban on cars that burn its products, like Shell did last week? The answer lies in the Anglo-Dutch group’s attempts to acknowledge how a low-carbon future might look.

Shell also bought the UK’s biggest challenger electricity and gas supplier recently, so it stands to benefit if more motorists plug in their cars.

Ben van Beurden, Shell’s chief executive, tells investors that he is not spending up to $2bn (£1.5bn) a year on green stuff just for the company’s reputation. “Every time, I say it’s to generate a return, because this is a massive investment opportunity,” he said.

So straightforward self-interest explains a lot. But have no doubt – reputation is a big driver here. Shell needs a social licence to continue selling the dirty fossil fuels that will be the core of its business for years to come. A spot of green rhetoric keeps that licence alive.